September 2019
Putting
things in perspectives…. the market volatility, recession?
Undoubtedly, the trade war with China, and fear of slower global growth (GDP)[1] triggered the sell off in August. All of the major North American indexes were down and the news headlines managed to send the message that a recession[2] is imminent as the yield curve inverted[3] for the second time this year in August.
Concerns about the global economy which includes the fear of recession contributed to some of the market volatility. There are several measures to gauge the occurrence of a recession, one of which is the purchasers managers indexes (PMI). The data that was provided in July, indicated companies were producing more in the service sector, however slightly lower in the manufacturing sector; thus the aggregate total was higher. This seems contrary to a global recession, albeit there maybe slower growth.
The major cause of the volatility is the trade war with China; anecdotally this is perhaps the number one reason for the market volatility. Headline news broadcast, telling us the two largest economies in the world are at war, triggered enough fear for investors to make an emotional decision to leave the market.
How big is the impact of the trade war… tariffs on $300 billion of Chinese imports is set to go into effect September 1 and December 15. All previously announced tariffs and are less than 0.3% of world GDP, which in the bigger picture hardly seems a contributor to disrupt the current bull market.
My view is there will be continued volatility for the remainder of the year, slower growth and a recession? – that will continue to be the debate with news headlines.
[1] GDP – Gross Domestic Product as measured by all goods and services produced.
[2] Recession – two consecutive quarters of negative growth in the economy.
[3] Inverted Yield Curve – yield on short term bonds are higher than longer than 10-year bonds
Also attached is my quarterly newsletter; please take a moment to read. As always, if you have any questions or concerns I can be reached via email or telephone.
Yours truly,
Rafeeza
